Last Mortgage Payment15-Year vs. 30-Year Mortgage: Which Saves More?
A 15-year mortgage saves a huge amount of interest. A 30-year mortgage has a much lower payment. There's also a third option worth knowing about: a 30-year loan that you pay off like a 15-year loan.
Side-by-side example
A $300,000 loan. 15-year loans usually have lower rates than 30-year loans, often about half a point to three-quarters of a point lower, so this example uses 5.75% for 15 years and 6.5% for 30 years.
| 15-year at 5.75% | 30-year at 6.5% | |
|---|---|---|
| Monthly payment (principal and interest) | $2,491.23 | $1,896.20 |
| Total interest | $148,421 | $382,633 |
| Paid off in | 15 years | 30 years |
The 15-year loan costs $595 more a month but saves about $234,000 in interest. Part of that comes from paying the loan off faster, and part comes from the lower rate.
The middle option: a 30-year loan, paid like a 15-year
What if you take the 30-year loan but voluntarily pay that same $595 extra each month?
- Paid off in about 16 years, 4 months
- Total interest about $187,171
That costs about $39,000 more than the true 15-year loan, because of the higher rate. What you get for it is flexibility: your required payment stays at $1,896. If you lose a job, have a baby, or face a big repair, you can drop the extra payment without missing a mortgage payment. With a 15-year loan, the higher payment is required every month, no matter what.
Choose a 15-year loan if…
- The higher payment fits easily in your budget, with room to spare
- You already have a solid emergency fund
- You want the lowest total cost and like a forced savings plan
- You're aiming to be mortgage-free by a specific date, such as retirement
Choose a 30-year loan (and maybe pay extra) if…
- The 15-year payment would stretch your budget
- Your income varies, or you expect big expenses
- You want to keep the option to invest instead of prepaying
- You like having a safety cushion, and you're disciplined enough to make extra payments when times are good
Other terms
20-year and 25-year loans exist too, and their rates usually fall between the 15-year and 30-year rates. You can compare any term in the calculator: change the loan term and rate, then add extra payments to see how close a longer loan gets to a shorter one.
Still deciding whether to prepay at all? Read should you pay extra on your mortgage?
This article is general information, not financial advice. Examples are rounded and assume a fixed-rate loan; your lender's numbers may differ slightly.